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It is a common practice for a story for children to have a happy ending. Would it be considered inappropriate and disappointing for the young reader if his hero/heroine will suffer a horrible tragedy in the end? Or maybe not a horrible tragedy, but just a small misfortune?

This is not "in" nowadays, but personally I'd love to see a (tastefully) sad children's book. (Also, not an ending, nor a book, but Disney's UP shocked me with its introduction, and it was very popular.)
– andyvn22Nov 29 '10 at 22:12

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I genuinely love this idea. Teach them what life is really like; bring tears to those big, dreaming eyes. Superb.
– Edward RoseSep 15 '11 at 4:22

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"And then the very hungy caterpiller, who was now a butterfly, was eaten by a passing crow".
– Schroedingers CatMar 21 '12 at 15:43

11 Answers
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It seems to be something which has fallen out of practice, but many fairy tales were originally written with horrible gruesome endings, mainly in order to scare children into good behavior.

The original The Little Mermaid, for instance, would have emphasized the importance of being an obedient daughter and not accepting favors from shady characters.
Several other examples here.

I doubt you'd sell a lot of copies of such a children's story these days with the way parents try to shield their children from any sort of disappointment.

It would be interesting to know if anyone has any successful modern examples, but I suspect there are none. It seems to be a lost art.

Update: Actually, Robert Munsch does come to mind as an author who has been highly successful writing endings which are not stereotypically happy. The Paper Bag Princess, for instance, has a very neutral ending, with the princess realizing she is better off not having rescued the prince.

"The Giving Tree" is a HORRIBLE story. The ending is just the fecal cherry on the vomit icing on a turd of a tale.
– Lauren IpsumMar 22 '12 at 17:12

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@LaurenIpsum Your viseral reaction to "The Giving Tree" may actually show how good the writting actually was. While the boy is a parasitic cowsplat constantly taking anything and everything he can from the tree, the story itself skillfully portrays that horrible situation..
– Michael RichardsonMar 21 at 19:08

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@LaurenIpsum I completely agree. I have seen so many situations where copies of this book is given out as a fun children's book, or a "lets all learn to be more generous" type gatherings. I have never read this book (even as a child) and not be horrified by the greedy git.
– Michael RichardsonMar 21 at 21:34

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Shell Silverstein intentionally wrote unhappy endings, and the book was dedicated to an x girlfriend. Given that his adult rendition in Playboy involved a woman severing a man's limbs, you can probably guess what he actually thought it was about.
– KirkMar 21 at 23:26

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The Little Mermaid is both tragic and uplifting, whereas there are plenty of tales by the revered children's author that have much bleaker endings. Some time ago I wrote a short review of HCA's Fairy Tales, mostly looking at the darker stories.
– ChappoMar 22 at 0:34

mootinator makes a good point. But I can imagine a public that, while not interested in unfortunate endings per sé, might be interested in "neutral" endings, namely the skeptic community. Real life is not supposed to suck, neither is it supposed to be good to us, it's rather "indifferent" to our fortunes, although the word "indifferent" is a bit too antropomorphic to my taste here.

I think it is a real challenge to write a story that is appealing to humans, yet is not taking an either all is good or all is bad view. Most interesting stories are interesting because they appeal to our prejudices in some smart way, and yeah, a public will want to see a nice ending, another public will crave for an apocalypse... but the public for "things happen" is certainly not so broad. Just write down what a typical week of your life is and try to sell it in bookform, fail guaranteed. Yet, I think there's something there. There must be a way to combine the two forms. After all, many history books are just that. If history books for the great public or books inspired on historical facts were just as dry as the academic stuff, nobody would read them. They somehow manage to be interesting by weaving a story out of the otherwise boring succession of chance and necessity.

There are many classics that are "morality neutral" in this way. For instance Dostoievski, although he was a fervent but doubting christian, writes in a fairly a neutral style. I've never felt that he pushed his own ideas onto me. Yet, his books are all about ideas. There are no good or bad endings in his stories, for some characters, things turn out well, for others things don't. And the distribution of good and bad outcomes is not correlated to the goodness of the characters in any way. Of course, Dostoievski is quite high level literature, not accessible to children, but I was just looking for an example.

Dostoyevsky also believed that writing about truly good characters (who deserve truly good things) was significantly more difficult that writing believable truly evil characters, so this might explain why he's not often writing very happy works.
– justktNov 22 '10 at 15:08

they don't but it's sort of such an obviously delightful play on the usual happy endings that it is far less intense than say a traditional fairy tale before Disney got hold of them.
– justktSep 14 '11 at 22:33

A series of unfortunate events finishes every book apart from the last one with a moderately happy ending.
– JoaoSep 15 '14 at 2:17

Don't worry about it. Just balance out the darkness with some charm. If the young reader loves your characters and enjoys the tale, he or she will put up with anything.

Look at J.K. Rowling's Harry Potter series. Those are grim, grim books. Death is a prevalent theme from the outset. Fully one third of the books is about someone's dead parents, or how someone was tortured, or about how the big bad is going to kill everybody, or about how many casualties occurred from dementors, Death Eaters, or Voldemort. She kills off characters you adore, on a regular basis, just to keep you guessing. And you're pretty sure anyone is fair game. Even the principals.

It also depends on the target age group. Conventional wisdom indicates that older children - say, preteens - can handle more complex and negative stories than small children. Hence why you get the newbery medal syndrome where the dog always dies at the end to teach children about death and moving on from tragedy.

Three words: Bridge to Terabithia. Every single time I have heard someone mention this book (or the film based on it), it's been in the context of how much they were traumatised by its ending as a child.

A more personal example (since I've never seen/read Bridge to Terabithia myself) would be the Nicholas Fisk novel A Rag, A Bone, and a Hank of Hair. I don't think it was supposed to be for kids, but it was in my school's library, I read it when I was nine, and it was the first story I ever encountered where the hero doesn't win. Specifically:

He and the clone family he's spent the book trying to protect are killed in a bomb strike, and I still remember the description of him watching the flesh strip from his hands as he dies.

It haunted me for years. But I remember the story better than any other book I read at that age, even The Lord of the Rings, because it left that much of an impression on me.

So what's the effect on a young reader when a story has a tragic ending? Childhood trauma.

Don't mistake "a happy ending" with "defeated the monster". Fairy stories of old had several goals, one of which was to show children that the monster can be dealt with. Note that that does not mean everything will turn out alright. Sometimes it's a choice between two terrible things, one of which is worse than the other.

Modern fantasy works are spiritual successors to the old childrens' fairy tale. Things might turn out okay in the end, but there is often a lot of loss along the way. Mistakes are made. People die (or are killed). And so on.

There are definitely examples of children's stories having unhappy endings.

Stories in the horror genre, including those written for kids, tend to have unhappy endings, especially when meant as a cautionary tale. Even R.L. Stine books, which are pretty silly, often end badly for protagonists, not to mention a lot of Choose-Your-Own-Adventures.

In Fantasia, the dinosaurs died after a drought.

In The Lorax, while the ending is hopeful, the world is still ruined.

There are also stories about kids dealing with death/grief.

As for the psychological effect, I doubt it would traumatize a kid, unless it was extremely gruesome to begin with. Anecdotally, I enjoyed many books and movies from my childhood that had unhappy endings, though whether an unhappy ending will fit a story is another issue, and it doesn't necessarily depend on whether it's for kids or adults.

King Matt the First is very explicitly written for seven-year-olds. It's about a seven-years-old prince, whose father dies, so he becomes king. He tries to be a good king, but there's a war, and he's defeated, and ends up being exiled. There's a sequel - in its end, he dies in a factory accident.
I read King Matt the First when I was seven. For a good while, it was my favourite book.

Why was it that this sad book, and no other "happy end" one became my favourite? Because it touched my like no other book had. It made me think, and it made me feel, and it made me think again. This wasn't "entertainment", a piece of candy, sweet while it lasted, forgotten the moment it was over. This was something more, something deeper. I couldn't have put it into words back then, but I appreciated it nonetheless. I wanted more books like that.

No, it did not traumatise me that Matt didn't get a happy ending. On the contrary: a sad story lets a child experience grief in a safe environment - end of the day, the child knows it isn't real. One can poke at it - reread a sad passage, and then leave it when one doesn't want to be sad for too long, and go play with one's friends. In a way, it prepares a child for real grief.

That said, you need to be explicit with what happens to your protagonist. You can't hide it behind "he went away". Reading The Little Prince when I was seven, it was not clear to me that the prince died, or was never there at all (depending on how you choose to look at it). I took things at face value: magic existed in stories (though it didn't in the real world - don't let anybody tell you that children don't know the difference at that age). This story already had a talking fox and a talking snake, it had magical travel between planets, why wouldn't the snake's bite return the prince to his asteroid?
You hide something, the child doesn't understand and then has it explained to them, the child feels you lied to them. Because, if the character died, why wouldn't you say that he died? And having the narrator lie - that is a disappointment, a breach of trust between storyteller and audience.

There a series of children's books about Mog the cat and the last book is called "Goodbye Mog". It has Mog happily and peacefully going off to sleep. Despite being a bit too old for the books by the time it was published, I was still sad! Mog then helps the family's new kitten so the family have a new cat to love so the ending is happy and sad at the same time.